1. Field of the Invention
The present invention relates to administrative methods and, more specifically, to a method of administering a financial instrument.
2. Description of the Prior Art
Many organizations issue bonds to finance the purchase of capital equipment. Such bonds typically comprise a principle amount and an obligation to pay to the bond holder interest on the bond at regular intervals until the bond matures, at which time the issuing entity is obligated to pay the bond holder the principle amount.
For example, an airline typically issues a series of bonds to facilitate the purchase of new airplanes. The principle amount roughly equals the purchase cost of the new airplanes. The bond might have a 30 year maturity, during which period the airline must periodically pay interest. At the end of the 30 years, the airline must pay the principal amount to the bond holder.
Many bond issuing entities are service providers that have relatively fixed costs, irrespective of the actual number of customers using the services. In the airline example, many flights will have as many as 30% seats going unused. To achieve economic benefit from these unused services, the service providers frequently offer them as part of an incentive program. Again, using the airline example, most airlines issue "frequent flyer" miles that allow regular passengers to purchase tickets, usually for otherwise unused seats, once the passenger has accumulated a predetermined number of miles.
Frequent flyer miles have considerable value to the passengers and cost the airlines virtually nothing. Yet they have the disadvantage to the airlines that they only provide the incidental benefit to the airline of encouraging passengers to fly on one airline versus another. They do not provide direct income to the airline. Furthermore, they have the disadvantage to the passengers of requiring the passengers to earn miles over a long period of time and sometimes in an unpredictable fashion.